UK Law Commission Proposes Creation of Separate Legal Category for Cryptocurrencies

The Law Commission of the United Kingdom has put forward several recommendations to address the legal challenges posed by cryptocurrencies and digital assets. As part of its analysis, the Commission has suggested the creation of a distinct legal category for these assets, recognizing their unique characteristics and providing them with appropriate legal protection.

The proposed category of personal property would encompass a wide range of digital assets, including cryptocurrencies and nonfungible tokens (NFTs). The Commission believes that the common law should determine the specific assets that fall under this category, allowing for a flexible and nuanced approach.

In addition to the new legal category, the Law Commission has recommended the establishment of an industry-specific panel consisting of technical experts, legal practitioners, academics, and judges. This panel would offer non-binding advice to courts on various legal issues related to the cryptocurrency sector, drawing on the expertise of professionals in the field.

To facilitate the operation and enforcement of collateral arrangements involving digital assets, the Commission has proposed the development of a bespoke legal framework. This framework would provide clarity and guidance for parties entering into collateral agreements, ensuring that the rights and obligations of all parties involved are properly addressed.

Lastly, the Law Commission suggests statutory law reforms to clarify the applicability of the UK’s Financial Collateral Arrangements Regulations of 2003 to specific digital assets. This would provide a clear legal framework for collateral arrangements involving digital assets, giving parties greater certainty and confidence in their transactions.

The Law Commission’s review of the legal challenges surrounding cryptocurrencies and digital assets began in October 2022, following a request from the Ministry of Justice. The proposed recommendations aim to address these challenges and provide a robust legal framework that balances the need for innovation and investor protection.

In line with these efforts, the UK Treasury and Home Office have also announced plans to regulate the cryptocurrency sector more rigorously, with a focus on combatting criminal activities associated with cryptocurrencies. These measures reflect the government’s commitment to ensuring the responsible and secure use of digital assets within the country.

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